With the advent of cheap digital IC-technology, two new methods have emerged for protecting multimedia content (video, audio, etc): encryption and watermarking. These tools are added to already existing ones like CGMS copy-bits for CD and video, and Macrovision spoiler signals for VCRs. Since these protection methods all have their particular strengths and weaknesses, they are or will be applied as a mixture in various combinations.
A watermark is an imperceptible label that is embedded/added to an information/host signal comprising multimedia content. The label may contain for instance copyright information, copy protection information, the name of the owner of the content. The information that may be stored in or derived on the basis of a watermark is usually referred to as a payload and is expressed in bits. In most watermark schemes the watermark is a pseudo-random noise sequence (pn-sequence), which is added to a host signal/information signal in either the time, spatial or a transformed domain (e.g. Fourier, Discrete Cosine or Wavelet Domain). Watermark detection is then usually based on a correlation between the watermark and the embedded host signal.
Watermarks are detected and decoded after the piece of content to which they pertain has been played/recorded, which poses interesting real-time problems. A number of popular copy-protection system architectures subscribe to the following axioms:    1. When recording from an analogue (unencrypted digital) source, if the incoming content has been watermarked copy once (CO), signifying that it may be copied once by this recorder, but no further copies of the first copy are allowed, this content shall be:            (a) Remarked, i.e. a second watermark will be added signifying that it cannot be copied again: copy-no-more (CNM).        (b) Encrypted before transferal to the storage medium (tape, optical or magnetic disk). E.g. working group 9 of the DVD-forum has mandated that copy-once content shall be encrypted whilst stored on disk. The 4C CPSA copy-protection architecture (Copy Protection for Recorded Media, by IBM, Intel, Matsushita, Toshiba) is another example.        
Note that if the content is marked CO but has already been remarked (CNM) it will obviously not be recorded again.    2. Content watermarked as copy never (CN) or CNM shall not be recorded.    3. Content watermarked copy free (CF) or non-watermarked content, copy free in short (CF) shall be recorded without further encryption. This has not been formally agreed, but holds the status of a communis opinio.    4. In a player, the CNM and CN content should be encrypted on the record carrier. Unencrypted content with a CNM or CN watermark is therefore considered illegal. Thereby playback of media with illegal content is impossible, illegal content could be recorded by e.g. pirates using non-compliant recorders to dump watermarked content on a disk.    5. Watermarks only need to be checked in unencrypted content (playback and recording).
Recently a new category of content has been defined, called “Copy Free, no internet retransmission” (CFNIR): it can be copied freely within the home, but may not be retransmitted outside the home, for example via the Internet. It is to be treated as CO content, without the remark step. For such content the following axiom has been defined:    6. Content watermarked as “Copy Free, no internet retransmission” (CFNIR) may be recorded. This material shall be encrypted before transferal to the storage medium (tape, optical or magnetic disk).
Information in the watermarks regarding CNM, CN, CF and CO are interpreted and used as defined in the axioms when recording and playing back the content.
These described axioms should be able to deal with three types of recorders:
Compliant CO-enabled.
These types of recorders can make CO recordings.
Compliant not CO-enabled.
These type of recorders cannot record CO content, e.g. because they cannot remark or encrypt in accordance with axiom 1. The recorder has a watermark detector to recognize the CN or CO-status.
Non-compliant recorders.
These types of recorders are recorders modified by counterfeiters or legacy devices.
Watermark detection is a statistical process with the probability of successful detection depending heavily on things like the nature of the underlying content (lots of edges, high standard deviation etc.), signal to noise ratio (SNR) of the incoming signal, synchronization etc. The consequence is, that temporarily dropouts of the watermark might occur and during recording of CO content according to axiom 1 the encryption process will be interrupted.
This results not only in sub-optimal content protection, intermittent stretches of unencrypted content also pose a big threat to the consumer during playback. As mentioned in axiom 4 above, watermark detectors not only operate during the recording phase, but also during playback. Again because of the statistical nature of the detection process, it may very well happen that where the watermark detector in the recorder did not discern the CO watermark, the detector in the player does discern the CO watermark in one of the unencrypted stretches. Axiom 4 dictates that the player is obliged to interpret this as illegal because all CO content should be encrypted, and will cease playback. Although the probability of different watermark detector behavior in the recorder and the players is not large, with a large numbers of recorders and players on the market, it cannot be neglected.
A second related problem is that of a recorder of the type: Compliant not CO-enabled, trying to record CF content following CO content. Customarily the timer is set just before the end of the CO-segment, which the recorder cannot and does not want to copy. However when the desired show comes on, and the watermark vanishes the recorder does not know whether to interpret this as a watermark dropout or the beginning of the desired CF show, not having a watermark according to axiom 3.
A third related problem is that of a recorder of the type: Compliant CO-enabled, making a recording including CO content followed by CF content. This takes place because of two adjacent shows with different watermark status, but also because of a channel-change, e.g. on a set-top box. During the transition, two problems occur: first there is a latency in watermark detection, i.e. encryption/remarking gets turned off too late, and secondly again the watermark detector can not be sure whether the unwatermarked information signal presents a dropout or CF content.
It has been proposed to solve the above-mentioned problems by encrypting both CO and CF content. If CF content is also encrypted, watermark detection dropouts are trivially taken care of. Although some implementers in the SDMI arena have adopted this principle, it has as a major drawback that consumers need compliant software (i.e. containing decryption keys) even for processing content they produced themselves (e.g. editing home-videos requires licensed software). It is not clear whether the encryption-key licensing agent would want to make keys available for video-editing computer programs, potentially exposing vital secrets of the encryption system.